Notes and ideas on mass customization, personalization, customer co-creation, and open innovation -- strategies of value co-creation between organizations and customers. This blog continues a long running newsletter, published and edited by Frank Piller, RWTH / MIT, since 1997.

July 16, 2013

[Interview] PUMA's Head of eCommerce: Changes and Challenges of Customization in the Apparel Industry

Our friends at embodeehave recently conducted a very interesting interview with Thomas Davis, global head of e-commerce for PUMA. To share his views with you, embodee sent us the following guest post, with excerpts from the original interview, that we recommend for a number of interesting insights.

Embodee, a company headquartered in Portland, Oregon,enables
apparel brands to display virtual samples for merchandising and
finished garments for customization. Its patented imaging
technology digitally scans, stitches, and drapes physical garments,
creating 3D virtual renderings true to reality in appearance, size, and
fit. The garments are viewable from any angle and easy to customize with
various design features. Images of highly customizable garments for some of the
world's largest sports apparel brands are delivered online by Embodee's SaaS
platform

Embodee: What are the most significant challenges for apparel
companies like PUMA in this omni-channel sales world? There’s certainly
a lot being written about it.

Davis: It depends on what kind of company you are.
I’ll boil it down to just PUMA and the wholesale channels because this
is a landscape of your retail and wholesale channels; and obviously your
wholesalers are partners and clients too. Secondly, the brand has to
decide what is the balance between sales and marketing. So it’s a
complicated dance to figure out, and there isn’t one right or wrong
answer. Further, how do you get these channels to work in concert while
still balancing the needs of marketing and brand? Making sure that all
of these business interests—everything—work together and complement each
other is much easier said than done.

Customers
don’t care or understand the internal conflicts. Nor should they.
Customers simply want what they want, which in our case is our product
and our brand experience. Customers don’t think in terms of business
units or channels. They think in terms of product and buying that
product as easily as possible.

Trying to find that multi-channel synergy is really, really hard
because traditional brands like a PUMA or anybody of this size that has
grown as a traditional wholesaler aren’t prepared for some of the
changes happening in the retail world. Some of the rules for the last 60
or 70 years are breaking down. And what took decades to establish is
now being broken down in months as the speed of the digital world is
accelerating. Example: Rocket Internet. They are basically copying the Zappos
model outside the U.S. and growing their business to billions in
revenue in just a year or two, which is x-fold faster than Zappos, which
was x-fold faster than traditional wholesale distribution. It’s
jaw-dropping how fast everything is evolving, especially outside the
U.S. What retail looks like in five or 10 years, who knows? But you’re
seeing examples of companies trying to find their way in this
marketplace. Some are doing well at it and some aren’t.

Embodee: Speaking of those challenges, how does your vision for e-commerce address them?

Davis: For PUMA specifically, we have to attack the
market in a very focused way because the reality of our situation is
that we can’t compete on price, meaning we can’t be the lowest price out
in the market. That’s just kind of cutting ourselves off at the knees.
Further, we don’t have the luxury of running a break-even business,
meaning we can’t put all of our operating expenses toward overnight
shipping and service. Yet, we are consistently compared to those digital
players. But that is the reality we live within, and we have to find
creative ways to be relevant.

So I try to look at where can we compete and compete effectively. One
is product content. I believe we must have world-class PUMA information
about our products (photography, copy, content, digital assets, etc.).
We also should have the most comprehensive, user-friendly experience for
shopping decision-making in the digital world.

We hope that our PUMA experience will be better than an Amazon’s “shop in shop”
presentation for PUMA, and better than a Zappos, for example.
Specifically, as a retailer we don’t have much control over the
presentation of our products in our partners’ stores/marketplaces. We’re
losing brand control, if you will. Search Google for “puma suede”
and you will see the varying degrees of photography/presentation. Some
good, some bad. Theoretically, we should be able to showcase our
products in our store in the best lens possible, and we will aim to do this over the next few seasons.

One of our key strategies is product information management. We’ve
spent a tremendous amount of effort and time over the last two years
honing these skills internally. Unfortunately, it’s generally a
behind-the-scenes kind of project. The only in-front-of-the scenes
result of that is really the output of a website and customers
interacting with that information.

But I believe that’s a cornerstone of our strategy. The other
cornerstone is product selection. If we’re selling the same exact
product as Amazon, and if they’re going to beat us on price and service
and be comparable on product information, then we’re still going to
lose. Probably nine times out of 10. But if we can create a product
assortment, develop product awareness, product depth—whether its size,
color or make of material—that’s different than what’s in the wholesale
channel—then we have an area for competition and a reason for customers
to come to our online store.

So between world class product content and offering a product
selection that’s different or at least complementary to what is in other
channels, that’s where we can play and immediately be competitive.

Embodee: How does mass customization fit in from your perspective?

Davis: When you start thinking about a diversified
product strategy in terms of more SKUs, more colors, and more options,
you start running into liability.
Meaning, you have to front load cash flow to pay for inventory/product
that might sit on shelves for weeks if not months before it’s purchased
and your return on the investments is recouped. It’s the long-tail game.
When you’re trying to keep your margins high and your turn ratios high,
it’s a very difficult one to balance. Creating lots of inventory that
sits on shelves all over the world is just basically money sitting there
that can’t be allocated toward other business-enhancing projects. The
turnaround time on product is probably a year lead time for some
companies. That’s a long time to tie up money, especially when there’s
no guarantee in the world of fashion.

You’re taking physical bets on what the trend or the style will be a
year from now, and who knows whether Jay-Z comes out with a new record,
Justin Timberlake does something, or Taylor Swift wears a pair of PUMAs
in her video. It’s serendipity to some extent (or really good product
placement—hah). So when I start thinking about those kinds of
constraints I start to look at on-demand products. What’s better than
being able to create something on demand and eliminate those upfront
risks?

To develop products, colors and/or styles that may mean nothing to
the customer a year from now, you end up with excess product. This is
what happened in 2008 when we hit the recession and companies were left
with shelves full of product which needed to be liquidated. The only way
to push that amount of excess product is to flood the market and
discount like crazy. That is not sustainable from a business
perspective. So I start to look at on-demand or mass customization as a
plausible solution for a company like PUMA, which answers a lot of our
financial challenges. But it allows the consumer to dictate freely what
he or she wants.

That’s liberating for a business owner and also creates desire from
consumers, which gives us a great competitive advantage—provided we do
something really cool for the brand, that’s PUMA-fied, that the
consumers love. I see that as a pinnacle piece of our strategy going
forward, and I think it will be so in the retail industry for years to
come. Look at the entrants into this new paradigm: Threadless, Zazzle, NIKEiD, miadidas, New Balance, Timberland, Converse,
etc. etc. The list grows every month. It’s happening in myriad
industries as well, so it’s not just limited to footwear and t-shirts.
More examples: Shutterfly, ForYourParty.com, L.L.Bean, the lists go on. Remember Dell Computers? Designing your own computer system was a breakthrough.

I’ll fully admit that PUMA is late to the game. We only recently launched PUMA Factory,
our first crack at online customization. Currently, it’s live for the
U.S. and Germany. We believe it’s still in “beta” stage, and over the
next few months we will determine if we’re on the right track
operationally as well as from a presentation point of view. The
opportunities are amazing if we get the block and tackling done.

People pay a premium for customization. They expect to have to wait
for it to be made, so the immediate gratification may not be there, but
it’s still quick and it’s individually driven. Dare I say, a younger
generation? They want to stand out, they want to be unique, and that’s
just in the U.S. Once you start going global with these ideas, your
ability to function with less risk—less cash flow volatility—it’s
potential, it’s plausible. It could be fantastic on so many levels for
the brand, like PUMA, as well as for the customer.

It still needs to be proven, but I think you’re seeing companies like
the NIKEiDs of the world going this way. I think you’re seeing the
Zazzles having done really well. Threadless. There are the big retailers
trying to do it like H&M or even Zara.
This is the way you can close that timeline to market. I think it’s the
future—part of the future—of retail at least. I think it has to be.

Embodee: You mentioned young people. They have an expectation
that they should be able to order on demand or customize because
they’ve grown up with that option in other arenas. Almost everything
they do is customized whether it’s music or pick your topic.

Davis: I completely agree. My nieces and nephews are
in their late teens and they’ve never known anything different, and
that’s only going to become more amplified globally. Their expectations
will include the ability to customize as a standard, not an exception.
It’s going to get to the point where everything is a showroom. You’re
seeing stores go out of business because they try to overstock. I think
they should be embracing the showroom aspect and let people customize.
“Here are three basic colors in the store, buy them if you want, but if
you want the new shiny toy—insert your product—in purple and chartreuse,
order it customized and we’ll have it for you next week.”

The question is what companies are going to truly embrace that? If
you’re buying a year ahead, you can support putting product on a boat
and letting it ship from China to the U.S., and that takes six weeks.
That’s all gone when you go to this model, you’re just speeding up the
processing chain, but it is completely doable. This may be a reach, but Ford
was the first to create the assembly line for cars. This was a drastic
and radical step almost a 100 years ago. There is nothing stopping
retailers, like PUMA, from making a radical shift in the production
pipeline if it will not only solve a company’s cash/investment
challenges but (even more importantly) satisfy the customer’s want and
need.

I think there is an old adage that says
something like, “The customer is always right…” This is truer now than
ever in the world of customization.

The original interview and a lot more about embodee can also be found at the embodee website!